Wednesday, March 26, 2014
Nearly Two Billion Reasons to Master Those Evidence Rules
Anna Walsh at FDA Law Blog highlights an interesting evidentiary ruling at the heart of the Arkansas Supreme Court’s reversal last week of a $1.8 billion Medicaid fraud / false advertising judgment won by Arkansas against various defendants including Johnson & Johnson.
Three points. (The first and third being the most interesting for those just passing through.)
First, this case provides 1.8 billion reasons to ignore those who downplay the significance of evidence rulings! The evidence rules matter: just ask Johnson & Johnson.
Second, the appellate decision (available at the FDA Law Blog) illustrates the application of a somewhat technical modification of the business records rule in some states, like Arkansas.
Some background is in order. Although it is not completely clear from the opinion, it appears that Arkansas’ claim relied heavily on a FDA warning letter that informed Jannsen/Johnson & Johnson that a letter the company sent to doctors was misleading and explained the reasons why (e.g., “… minimizes the risk of hyperglycemia ...”). Arkansas appears to have offered the FDA’s letter as proof that the company’s letter was, in fact, deceptive in violation of Arkansas law.
Aside from the unusual derivative nature of this claim (perhaps implicating other evidence rules not referenced by the Court), reliance on the letter in this fashion rendered it hearsay (i.e., an out of court statement offered for the truth of the matter asserted). Arkansas offered the letter under the ubiquitous public records exception to the hearsay prohibition. In Arkansas, as in federal law, this exception covers government records that set forth “factual findings resulting from an investigation made pursuant to authority granted by law.” Ark R. Evid. 803(8). So far so good for Arkansas. However, Arkansas evidence rules include an exception to the exception that bars admission of public reports that set forth “factual findings resulting from special investigation of a particular complaint, case, or incident.” Ark. R. Evid. 803(8)(iv). The Arkansas Supreme Court deemed the FDA letter inadmissible under this provision because it resulted from a “special investigation” into the deceptive communication at issue. The dissenting Justices (persuasively, to my mind) argue that since the FDA’s duties include reviewing all such letters for deception, the trial court did not abuse its discretion in concluding that there was no “special investigation” and so the 803(8)(iv) exemption was inapplicable.
Third (and here is where things get crazy), whatever the merits of the Arkansas Supreme Court’s 803(8) ruling, it stumbles badly in adding a paragraph at the end of its opinion that rules that the letter was also inadmissible under Ark. R. Evid. 403. This portion of the opinion contains a sentence (p.26) that is going to so deeply upset Evidence professors that I suggest that they make sure they are seated before continuing reading. Here it is: “Finally, as argued by [the defendants], we note that for evidence to be admissible, it must be more probative than prejudicial. See Ark. R. Evid. 403.” Say what?!?!
The statement set forth above is doubly false. Arkansas rule 403 (like Rule 403s everywhere) states, “Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, . . . .” As judges love to correct imprecise advocates, all evidence is “prejudicial” or no one would offer it. Prejudice is only cognizable under Rule 403 if it is “unfair.” Second, the balance between probative value and unfair prejudice is not an even contest as the Arkansas Court twice suggests, not even close. Unfair prejudice has to “substantially outweigh” “probative value” for exclusion to be warranted. (Not to mention that trial courts are generally granted substantial discretion in these amorphous balancing decisions.)
The error in describing the standards seems to infect the subsequent analysis, where the Arkansas Supreme Court simply states that the FDA letter “may well” have carried “inordinate weight in the minds of the jurors” because it was issued by a government agency, and was referred to “repeatedly” throughout trial. The Court makes no mention of probative value in this analysis (as noted above, the letter was apparently probative on the state’s efforts to prove deception) and pays little heed to the need to find unfair prejudice. Jurors probably should give government publications significant (although not “inordinate”) weight – after all, that is why such documents are exempted from the hearsay prohibition in the first place. And referencing evidence repeatedly does not seem unfair. It probably made the trial boring, but if boring jurors was reversible error no judgment would survive.
To the extent the FDA Blog’s author is correct that even in states that don’t have Arkansas’ somewhat unusual business records exception, “the ruling still may be helpful in its findings related to the prejudicial nature of FDA’s Warning Letters” -- that is bad news for the evidence rules.
Thanks to FDA law guru Nathan Cortez for the pointer.